Merchant Study: Interchange Rule Saved Consumers Billions

A study released Tuesday by the Merchant Payment Commission, a trade group organized to lower debit and credit card interchange, said consumers saved $5.8 billion through prices lowered by lower interchange fees.

The study, conducted by economist Robert Shapiro, co-founder of Sonecon LLC in Washington, D.C., arrived at the figure by taking the overall reduction in debit interchange fees in 2012, the first year of the cap ($8.5 billion according to the Federal Reserve) and dividing it, 69% toward consumer savings with 31% toward retailer retention.

Shapiro drew that ratio from what he said had been a wide-ranging 2009 study of how merchants behave when they experience a reduction in fixed costs. On average, Shapiro said, 69% of the savings went to lower prices while merchants kept 31% of the savings.

“This was an extremely wide-ranging study,” Shapiro said Tuesday in a press call. “It involved something like 27,000 retail sites and was very detailed.”

Shapiro also said he considered the 60% lower price ratio to be “conservative” because of the types of costs being measured in the 2009 study.

The study looked at how retailers respond to promotions and changes to fixed costs, Shapiro explained. Since not all the promotions were considered permanent changes to cost, though some were, there was a mixed reaction in that study. I think it's very possible that the interchange cap resulted in greater savings, he added.

Predictably, the MPC expressed delight and support for the study.

"The facts are in and the numbers don't lie. Debit reform is helping consumers, and both consumers and the economy are big winners," said MPC Chairman Mallory Duncan, senior vice president and general counsel of the National Retail Federation. "Debit card swipe fees are eating up less of consumers' purchasing power, and that has yielded significant savings. These are long-term benefits that will steadily boost the U.S. economy."

NAFCU disagreed in a statement it issued later Tuesday.

“After two years with the Durbin Amendment, retailers are reaping $8 billion in rewards while there is still no proof of any savings being passed along to consumers. In fact, consumer prices have continued to rise despite claims to the contrary,” said Carrie Hunt, NAFCU’s general counsel and senior vice president of government affairs.

She pointed to a 2013 study from the Federal Reserve that noted a 4% decline from the 45 cents per transaction average interchange fees for exempt users (institutions under $10 billion in assets) in the first nine months of 2011.

“Credit unions also reported in many cases that the fees are not sufficient to cover the costs of processing additional transactions,” NAFCU said.